New Washington Law Makes Sweeping Changes to Non-Compete Agreement Law
Non-compete law in the state of Washington underwent sweeping changes last week with the signing into law of HB1450 (“Washington Non-Compete Act”) which targets the use of restrictive covenants within the state. The new law regulates the use and scope of non-competition agreements with both employees and independent contractors and restricts the use of non-poaching agreements in franchise agreements as well as policies against moonlighting. The new law takes effect on January 1, 2020.
Under the new law, a non-competition covenant will be void and unenforceable unless the following criteria are met:
- If the covenant is entered into at the commencement of employment, it must be disclosed in writing to the employee by no later than the date of the employee’s acceptance of the offer of employment;
- If the covenant is entered into at the outset of employment but will not take effect until a later date due to a foreseeable change in the employee’s compensation, the agreement must specifically disclose that it may be enforceable at a future time;
- If the covenant is entered into after the commencement of employment, it must be supported by additional consideration;
- The worker’s annual earnings must exceed $100,000 (in the case of an employee) or $250,000 (in the case of an independent contractor)based upon the income reflected in Box 1 of an employee’s IRS Form W-2 or an independent contractor’s IRS Form 1099; and
- The post-separation duration of the non-compete must last no longer than 18 months unless the employer can show by clear and convincing evidence that a longer duration is necessary to protect its business or goodwill.
The new law defines the term “non-competition covenant” to expressly carve out certain types of restrictive covenants such as employee and customer non-solicitation covenants, confidentiality/non-disclosure covenants, and covenants relating to the purchase or sale of a business or franchise.
Considerations for laid-off employees
In addition to identifying the criteria required for an enforceable non-compete agreement and defining what constitutes a non-compete agreement, the law includes special considerations for laid off employees. Businesses seeking to enforce non-compete agreements against employees who have been laid off must continue paying “compensation equivalent to” the employee’s base salary (minus income from subsequent employment) during the period of enforcement.
The Washington Non-Compete Act also cracks down on employer restrictions on employee moonlighting (i.e. having another job, being self-employed or working as an independent contractor). Section 8 of the new law provides that an employer may not prohibit an employee who earns less than twice the state minimum wage from moonlighting unless the second job raises legitimate concerns regarding safety, interferes with scheduling or creates conflicts of interest.
The new law also bans anti-raiding/non-solicitation provisions in vertical franchise agreements. Section 7 of the Non-Compete Act provides that, “[n]o franchisor may restrict, restrain, or prohibit in any way a franchisee from soliciting or hiring any employee of” either the franchisor or another franchisee of the same franchisor. Excluded from this ban on anti-poaching provisions are non-competition agreements entered into by a franchise, as long as the franchise sale is properly registered under Washington’s Franchise Investment Protection Act, or exempt from registration.
Included in the new law are stiff statutory penalties and fee shifting for violators of the statute. Importantly, these remedies are available even if the provision is partially enforced with only a portion of the covenant being modified or blue-penciled, which is expressly permitted by the Act. In such instances, the employee is entitled to recover the greater of actual damages or statutory damages of $5,000.00, plus attorneys’ fees, expenses, and costs. The law provides that claims under the Act can be brought by both the State Attorney General and aggrieved employees.
Whether you are an employer seeking to enforce a non-compete agreement or an employee being asked to sign one, it is always advisable to seek the assistance of experienced employment and law discrimination attorney. Our Elgin employment law, wage and hour, and non-compete agreement attorneys have more than three decades of experience representing individuals and businesses of all sizes, including small or closely held businesses for whom competition from an ex-employee can be a serious threat. Lubin Austermuehle is also available to help prepare new agreements, update existing agreements and employee handbooks, and advise on potential enforcement actions. Our employment and business dispute lawyers have defended high-level executives and represented classes of hourly workers in wage violation cases. A case in which our firm defended a former Motorola executive was covered in Crain’s Chicago business. You can view that article by clicking here.
Our Chicago business lawyers with offices near Elgin, Oak Brook and Evanston have substantial experience in restrictive covenant and breach of contract cases, and we are proud of our record of strong results. We represent both plaintiffs and defendants in such cases, and can also help stop litigation before it starts by reviewing contracts to look for covenants and clauses that could create problems later. Based in Elgin and downtown Chicago, our non-compete clause lawyers take cases from LaGrange, Willowbrook and many other cities throughout Illinois, as well as in Indiana, Wisconsin and the entire United States. To learn more or set up a free consultation, please contact us online or call toll-free at 630-333-0333 or locally at (630) 333-0333 today.